What is the small gifts exemption for inheritance tax?

Full answer

The small gifts exemption is one of several inheritance tax (IHT) reliefs that let you pass money to others without it counting towards your estate. Under this exemption you can give up to GBP 250 to any one individual in a tax year (6 April to 5 April), and you can do this for an unlimited number of different people -- children, grandchildren, friends, anyone. Each such gift is immediately outside your estate for IHT, with no seven-year clock to survive. Who it helps: anyone who wants to make modest gifts regularly and steadily reduce the value of their estate, particularly people with many grandchildren or godchildren. The two key rules to watch: first, it is strictly per person and capped at GBP 250 -- if you give someone GBP 300, the exemption does not apply at all to that gift (you cannot exempt the first GBP 250 and treat only GBP 50 as a potential transfer). Second, you cannot stack it on the same person who has already received a gift under your GBP 3,000 annual exemption; the two are mutually exclusive for that individual. Worked example: a grandparent with eight grandchildren gives each GBP 250 in 2026/27. That is GBP 2,000 moved out of the estate, fully exempt, and it is separate from the GBP 3,000 annual exemption which could go to other people. This contrasts with larger gifts, which are potentially exempt transfers and only fall outside the estate if you survive seven years. The 2026/27 IHT framework is unchanged: a GBP 325,000 nil-rate band, up to GBP 175,000 residence nil-rate band, and 40% on the excess (36% if at least 10% of the net estate goes to charity). Use an inheritance tax calculator to see how regular small gifts reduce a potential bill.

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